ShoreTel Reports Financial Results for Fourth Quarter and Fiscal Year 2014
SUNNYVALE, Calif., August 7, 2014 –ShoreTel® (NASDAQ: SHOR), the leading provider of brilliantly simple phone systems and unified communications solutions, today announced financial results for its fiscal fourth quarter and fiscal year 2014, which ended June 30, 2014.
For the fourth quarter of fiscal 2014, total revenue was a record $88.6 million, an increase of 4 percent compared to the fourth quarter of fiscal 2013. Non-GAAP net income, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other charges and related tax adjustments, for the fourth quarter of fiscal year 2014, was a record $4.9 million, or $0.08 per diluted share. This compares with a non-GAAP net income of $3.4 million, or $0.06 per share, in the fourth quarter of fiscal 2013. GAAP net income was $2.1 million, or $0.03 per diluted share, in the fourth quarter of fiscal 2014, compared with a GAAP net loss of $2.3 million, or $0.04 per share, in the fourth quarter of fiscal 2013.
“Fiscal 2014 was a great year for ShoreTel as we delivered on our commitments relating to business integration, product launches and infrastructure investments while delivering a record level of non-GAAP profitability,” said Don Joos, president and CEO of ShoreTel. “Furthermore, the growth actions we initiated in January are beginning to show results and our fourth quarter metrics demonstrate our early success.”
Fourth Quarter of Fiscal 2014 Financial Highlights
Recurring revenues, which consist of cloud monthly recurring revenues and support revenues, represented 38 percent of total revenue in the fourth quarter of fiscal 2014 and reached an annualized value of $136 million; an increase of 19 percent compared to the fourth quarter of fiscal 2013.
Non-GAAP total gross margin, which excludes stock-based compensation charges, amortization of acquisition-related intangibles and other charges, for the fourth quarter of fiscal year 2014, was 61.1 percent, compared with 61.4 percent in the year-ago period. GAAP gross margin for the fourth quarter of fiscal year 2014 was 59.6 percent, compared with 59.9 percent in the fourth quarter of fiscal year 2013.
Hosted revenues of $24.1 million were up 25 percent year-over-year and 6 percent sequentially. Non-GAAP hosted gross margin was 43.7 percent in the fourth quarter of fiscal 2014, compared with 39.1 percent in the fourth quarter of fiscal 2013. GAAP hosted gross margin for the fourth quarter of fiscal year 2014 was 39.4 percent, compared with 34.9 percent in the fourth quarter of fiscal year 2013. The total number of installed customer seats increased 30 percent over the fourth quarter of fiscal 2013 to approximately 151,000. Revenue churn was approximately 5 percent annualized in the fourth quarter of fiscal 2014 and continued to reflect an industry low metric.
Product revenues of $47.3 million were down 7 percent year-over-year, but up 9 percent sequentially. Non-GAAP product gross margin was 64.6 percent in the fourth quarter of fiscal 2014, compared with 65.9 percent in the fourth quarter of fiscal 2013. GAAP product gross margin for the fourth quarter of fiscal year 2014 was 64.0 percent, compared with 65.4 percent in the fourth quarter of fiscal year 2013.
Support and services revenues of $17.2 million were up 13 percent year-over-year and 5 percent sequentially. Non-GAAP support and service gross margin was 75.9 percent in the fourth quarter of fiscal 2014, compared with 74.3 percent in the fourth quarter of fiscal 2013. GAAP support and service gross margin for the fourth quarter of fiscal year 2014 was 75.4 percent, compared with 73.2 percent in the fourth quarter of fiscal year 2013.
As of June 30, 2014 the company had $56.1 million in cash, cash equivalents and short-term investment and no outstanding debt.
Fiscal Year 2014 Financial Highlights
Recurring revenues, which consist of cloud monthly recurring revenues and support revenues, represented 38 percent of total revenue in fiscal 2014 compared to 34 percent in fiscal 2013.
Non-GAAP total gross margin, which excludes stock-based compensation charges, amortization of acquisition-related intangibles and other charges, for the fiscal year 2014, was 61.1 percent, compared with 62.0 percent in fiscal year 2013. GAAP total gross margin for the fiscal year 2014 was 59.4 percent, compared with 60.1 percent in the fiscal year 2013.
Hosted revenues for fiscal 2014 were $89.1 million, up 27 percent compared to fiscal 2013. Non-GAAP hosted gross margin was 42.0 percent in fiscal 2014, compared with 42.5 percent in fiscal 2013. GAAP hosted gross margin for the fiscal year 2014 was 37.7 percent, compared with 36.6 percent in the fiscal year 2013.
Product revenues for fiscal 2014 were $185.0 million, down 1 percent compared to fiscal 2013. Non-GAAP product gross margin was 65.2 percent in fiscal 2014, compared with 66.3 percent in fiscal 2013. GAAP product gross margin for the fiscal year 2014 was 64.6 percent, compared with 65.7 percent in the fiscal year 2013.
Support and services revenues for fiscal 2014 were $65.7 million, up 15 percent compared to fiscal 2013. Non-GAAP support and service gross margin was 75.2 percent in fiscal 2014, compared with 72.2 percent in fiscal 2013. GAAP support and service gross margin for the fiscal year 2014 was 74.3 percent, compared with 70.9 percent in the fiscal year 2013.
Non-GAAP net income for the fiscal year 2014, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other charges and related tax adjustments, was a record $14.7 million, or $0.23 per diluted share. This compares with a non-GAAP net loss of $1.6 million, or $0.03 per share, in fiscal 2013. GAAP net loss in fiscal 2014 was $1.0 million, or $0.02 per share, compared with a GAAP net loss of $25.7 million, or $0.44 per share in fiscal 2013.
Fourth Quarter of Fiscal 2014 Business Highlights
ShoreTel Completes the Migration of its Cloud Customers to New Data Center
In November 2013, ShoreTel signed a co-location agreement for a new highly advanced data center near Dallas, Texas and began to build the new architecture. Since January, the company has migrated its hosted customers from its New York City data centers into the new facility and the migration process was completed in June.
The new data center provides ShoreTel’s hosted customers with improved reliability and network performance. This infrastructure gives ShoreTel the growth capacity to meet the increasing demand for its hosted offering while achieving a lower cost structure.
ShoreTel Ranked as a “Strong Performer” in On-Premises UC&C by Independent Research Firm
ShoreTel was cited by Forrester Research, Inc.’s report titled “The Forrester Wave™: On-Premises Unified Communications and Collaboration, Q2 2014” as a “strong performer” and received its top scores for speed of deployment, quality of experience, and product road map.
This report and other recent research reinforces that ShoreTel continues to provide top-quality UC solutions that are easy to deploy, manage and use so they can make a difference every day in users' productivity and efficiency.
ShoreTel Dock Awarded Gold in the 2014 Asia-Pacific Stevie Awards
ShoreTel received Gold in the 2014 Asia-Pacific Stevie® Awards in three categories, ‘New Technology Product of the Year - Australia’; ‘New Technology Product of the Year – Singapore’ and ‘New Business Product of the Year – All Other Nations.’ ShoreTel received top accolades for the ShoreTel Dock, competing against 400 entries from 22 nations across the Asia-Pacific region. The Stevie Awards judging panel of 100 executives recognized the ShoreTel Dock as the first-to-market business-grade product that transforms the mobile device into a desk phone. Released in mid-2013, the ShoreTel Dock is noted to have revolutionized business communications, addressing the BYOD trend by transforming iPhones® or iPads® into desk phones for the mobile generation.
ShoreTel Expands Focus on Healthcare Vertical with Dedicated Sales Team
ShoreTel announced a vertical sales program focused on the healthcare industry to grow its client base of close to 1,000 healthcare providers along with a strong partner/reseller community representing ShoreTel in this vertical. This program is a natural evolution of ShoreTel’s go-to-market sales model with dedicated programs to deliver Unified Communications solutions to hospitals, physician practices and extended care providers to improve mobility, collaboration and care coordination.
ShoreTel Joins WSCA-NASPO Cooperative Purchasing Organization, Further Extending Government & Education Vertical Commitment
ShoreTel has earned a place in the WSCA-NASPO Cooperative Data Communications Products & Services Contract in the category of Unified Communications. ShoreTel currently has a large roster of state and local government, and K-12 and higher education customers. WSCA-NASPO is the leading public sector cooperative purchasing organization in the nation, and this achievement enables ShoreTel and its channel partners to expand their presence in the public market, primarily in the government and education verticals.
ShoreTel Relocates European Headquarters
ShoreTel announced the relocation of its European headquarters to larger offices in Bracknell, England, to reflect the company’s continued growth and success in the European market and to better serve its rapidly growing partner and customer community. The new facility doubles ShoreTel’s current floor space, in addition to equipping the company with an advanced technology demonstration suite and enhanced IT infrastructure. The relocation will initially see an increase in ShoreTel’s workforce with an objective of further growth in 2015.
ShoreTel is providing the following outlook for its fiscal first quarter of 2015 ending September 30, 2014:
- Total revenue is expected to be in the range of $84.0 million to $89.0 million.
- Non-GAAP gross margin, which excludes approximately 1.5 percent in stock-based compensation charges, amortization of acquisition-related intangibles and other charges, is expected to be in the range of 60.0 percent to 61.0 percent. GAAP total gross margin is expected to be in the range of 58.5 percent to 59.5 percent.
- Non-GAAP operating expenses, which exclude approximately $2.0 million in stock-based compensation expenses, amortization of acquisition-related intangibles and other charges, are expected to be in the range of $49.0 million to $50.0 million. GAAP total operating expenses are expected to be in the range of $51.0 million to $52.0 million.
Conference Call Information
The Company will host a corresponding conference call and live webcast at 2:00 p.m. Pacific Time on Thursday, August 7, 2014. To access the conference call, dial + 1-866-652-5200 for callers in the U.S. or + 1-412-317-6060 for international callers and ask to join the ShoreTel call.
A live webcast will be available in the Investor Relations section of the Company's corporate website at http://ir.shoretel.com/ and an archived recording will be available beginning approximately two hours after the completion of the call. An audio telephonic replay of the conference call will also be available beginning approximately one hour after the completion of the call until August 15, 2014 by dialing + 1-877-344-7529 for callers in the U.S. or + 1-412-317-0088 for callers outside the U.S. and providing the conference identification number of 10050007.
Use of Non-GAAP Financial Measures
ShoreTel reports all required financial information in accordance with generally accepted accounting principles in the United States (“GAAP”), but it believes that evaluating its ongoing operating results may be difficult to understand if limited to reviewing only GAAP financial measures. Many investors have requested that ShoreTel disclose this non-GAAP information because it is useful in understanding the company’s performance as it excludes non-cash charges, other non-recurring adjustments and related tax adjustments, that many investors feel may obscure the company’s true operating performance. Likewise, management uses these non-GAAP measures to manage and assess the profitability of its business and does not consider stock-based compensation charges and amortization charges related to acquisition-related intangible assets and the related tax adjustments, which are non-cash charges, or other non-recurring items in managing its core operations. ShoreTel has provided a reconciliation of non-GAAP financial measures following the text of this press release. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.
Legal Notice Regarding Forward-Looking Statements
ShoreTel assumes no obligation to update the forward-looking statements included in this release. This release contains forward-looking statements within the meaning of the “safe harbor” provisions of the federal securities laws, including, without limitation, statements by Don Joos, statements regarding future growth, and statements regarding market demand, benefits of the new data center and statements in the “Business Outlook” section regarding ShoreTel’s anticipated future revenues, gross margins, operating expenses (on a GAAP and non-GAAP basis) and other financial information. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The risks and uncertainties include the intense competition in our industry, our reliance on third parties to sell and support our products, our ability to continue to grow our cloud-based solutions, our ability to grow or maintain our premise products, supply and manufacturing risks, the impact of outages or security breaches, uncertainties related to international operations, our ability to control costs as we expand our business, our ability to attract, retain and ramp new personnel, potentially longer sales cycles, uncertainties inherent in the product development cycle, ability of third parties to successfully market and sell our products, uncertainty as to market acceptance of new products and services, the potential for litigation in our industry, the uncertain impact of global economic conditions, including impact on customers’ purchasing decisions, and other risk factors set forth in ShoreTel’s Form 10-K for the year ended June 30, 2013, and in its Form 10-Q for the quarter ended March 31, 2014.
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ShoreTel, Inc. (NASDAQ: SHOR) is a leading provider of brilliantly simple IP phone systems and unified communications solutions. Its award-winning on-premises IP-PBX solution and cloud-based hosted phone system eliminate complexity and improve productivity. Recognized for its industry-leading customer experience and support, ShoreTel’s innovative business phones, application integration, collaboration tools, mobility, and contact center applications enable users to communicate and collaborate no matter the time, place or device, with minimal demand on IT resources. ShoreTel is headquartered in Sunnyvale, Calif., and has regional offices and partners worldwide. For more information, visit www.shoretel.com.
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